HMRC freezes tax allowance
State pensioners born before 1959 face ‘odd’ letter addressed from HMRC
Older people are at risk of “odd” letters from HMRC as frozen tax thresholds catch more and more people. The personal tax allowance, set by HMRC, is £12,570, with the rising state pension – thanks to the Triple Lock – edging ever closer.
Rob Morgan, chief investment analyst at Charles Stanley, warned tax bills from HMRC could sting retirees as a result of fiscal drag. He said: “As well as being administratively messy in terms of dragging an unprecedented number of low-income pensioners into paying tax, it seems odd that this level of income should be taxed at all.
“According to the Pension and Lifetime Savings Association, a single person in retirement needs £14,400 a year for a ‘minimum’ standard of living, a figure which is after tax and assumes no mortgage or rent costs.
READ MORE Foreign Office warns UK tourists after alcohol declared ‘forbidden’
“This figure is significantly below where the income tax personal allowance would be if it had been increased with inflation, clearly demonstrating how low earners have suffered from fiscal drag too.”
The number of pensioners paying income tax will rise by 600,000 to 9.3 million in 2026/27, according to the Office for Budget Responsibility (OBR), from an expected 8.7 million in 2025/26.
The state pension age is currently 66, with those born before 1959 able to claim.
In 2030/31, one million extra pensioners will be dragged into the taxman’s net.
Rachel Reeves has said there will be a workaround for pensioners whose sole income comes from the state pension who are expected to pay income tax from 2027.
But the OBR said many of the one million people who will be pulled into the tax net in 2031 will pay “very small additional amounts” to HMRC.
The Triple Lock pledge sees the state pension increase by the highest figure out of 2.5%, inflation (CPI) or average earnings growth.
In April 2026, the state pension will rise by 4.8%. It means the full new state pension will increase from £230.25 a week now to £241.30 per week from April 2026.